Question

If consumers expect to have a shorter life expectancy and desire to save less, then the:

A) Present value of money will decrease.
B) Interest rates will increase.
C) Desired level of savings will decrease.
D) Consumption will decrease.

Answer 1

If consumers anticipate a shorter life expectancy and prefer to save less, the desired level of savings will decrease, leading to increased present consumption.

Step-by-step explanation:

If consumers expect to have a shorter life expectancy and desire to save less, then the desired level of savings will decrease. This implies that individuals would prefer more present consumption over future consumption because the future, in their view, is less certain or shorter. As a result, there tends to be a decrease in savings, as individuals opt to consume their income now rather than save for a future that is perceived to be less probable or imminent. Consequently, consumption will likely increase in the present because the opportunity cost of saving—the foregone present consumption—appears less valuable if life expectancy is thought to be shorter.